Argentine Real Estate market to go down 50%

[Ries]

I am not kidding about parking places. I have friends in the lower east side in NYC, who RENT a parking place in a garage for more than a 1 bedroom apartment costs in most places.

Here is a link to a $225,000 parking space (thats dollars, not pesos), but the article is from 2007.
With inflation, I dont think I am being facetious at all to suggest that there are $250,000 spaces out there.

http://www.associatedcontent.com/article/316807/what_would_you_pay_for_a_parking_space.html

Now $500k- that is a bit of an exaggeration.

 

[steveinbsas]

I'm not currently in the market to buy (perhaps in the future), but I hadn't thought about these new units in those terms. I can definitely see the potential for that kind of depreciation, although a good friend lives in a brand new building in Palermo Hollywood that is quite nice. Shiny hardwood floors, gorgeous backyard space.

He's renting, which seems to be the best way to go about things for now, at least, especially if you can get your hands on a guarantia. I understand the argument that "bricks and mortar" is the safest place to put your money in Argentina... but the majority of the posters on this board aren't Argentine. Personally, I'd rather have my money in the States.

Disclaimer: I recently had an Argentine friend describe the 2001 crisis in detail, and it sounded terrifying.

Of course most of the posters here aren't Argentine. This is an expat website.

I bought an apartment because I chose to live here. If I had kept that same money in a bank in the States and gradually paid it in rent here, it would be depleted in less than ten years. I can't live in the bank and the bank was paying me far less to keep my money than my apartment is appreciating (even now).

If I had kept that money in mutual funds through this past year, I would have had much less much faster. I can't live in a mutual fund, either.

The 2001-2002 crisis here wasn't nearly as terrifying as other periods in Argentina in the past 50 years or nearly as dear in terms of lives lost as from civil "unrest" in the US in the past 20 years.

In 2002 many Argentines lost money in banks, but loss of life here was less than half (26) compared to the death toll (55) in Rodney King riots in LA in 1991.

Personally, I'd rather be in Buenos Aires, with my money in bricks and canvas.

 

[Stanexpat]

In any city, desirable real estate is pretty stable.
There are just too many people on the planet with money these days.
Thats not to say that there arent bubbles, and that prices dont go down as well as up- but, even in this market, a one bedroom apartment in NYC in a good neighborhood is still costing $600,000. The really nice houses in LA or SF or Seattle are down, yes, but nowhere near 50%.
Same with Paris or London.

It is true that fools who think they can double their money in 2 years in these markets are finding out differently.

In BsAs, the quality, older units in good neighborhoods are not gonna drop 50%. They just may not go UP 25% a year.

And the really nice, older apartments in Recoleta, or Palermo, are still incredible screaming bargains when compared to similar places in other cities of 4 Million people, worldwide.
Show me a flat in London, or Madrid, or San Francisco, or Tokyo, with 4 meter ceilings, hardwood floors, stained glass, 150 sq meters or so, with a doorman, a lobby with marble and brass, that sells for $250,000 US. Or even $500,000 US.
And yet, savvy shoppers can still find places like that, with incredible character and detailing, in very good neighborhoods in BsAs.
A one car garage stall can go for that much in SF or NYC, easily, in the right neighborhood.

What I would be hesitant to buy, is the brand new, ice cube tray, shoddily built condos in places like Palermo Hollywood. These things are cheap, quickly built, and won't age well. Interiors are basic, low quality finishes, cabinets are particleboard, everything is as cheap as it can be. They are NOT gonna be the high priced, desirable locations in 5 or 10 years- Juan B Justo is loud and dirty, there is none of the old charm of Recoleta or San Telmo.

In any market, the places people want to live hold their value, while the quick speculative frenzy fades.

Can't say I agree with all your arguments. I would agree that the most desirable areas are affected last, but in the end they take a hit as well.

I remember on this board people making the argument a year or two ago that there wouldn't be a problem in B.A. and places like N.Y. City at that time was unaffected. Well now prices in places in N.Y. City are falling even in the most desirable areas, it just took longer for the problem to get there. Again if foreigners and the limited number of locals with money stop buying what's going to support the market in B.A.?

Will those areas most in demand stay higher priced than those in lesser demand? Sure, but it doesn't mean they won't go down. These declines seem to start on the fringes and work their way to the center. When the speculation ends and the declines begin it tends to continue until some equilibrium point is reached. Generally price declines continue until investors see value or prices fall to the point where more people can afford to buy.

I don't know if 50% decline is possible or not even in the cities you mentioned. Of course if someone predicted 2 or 3 years ago prices would be fallen as much as they already have they would have been considered ready for a rubber room by many.

 

[jp]

I hope you're not depending on the GBP recovering: I don't believe it will happen. A year ago I started to read forecasts of euro-GBP parity and this has just about materialised. The British economy is in even worse shape than the US economy.

Bit OTT

The exchange rate dropped because of the discrepancy between interest rates in the UK and the eurozone, coupled with the long term forecasts for the UK. The UK has since changed its interest rates, and the result has been that that GBP has buoyed against the euro, and will likely continue to climb.

The current exchange rate is poor, and will correct given time. And if you're investing thousands of GBP, a few percent makes a big difference....

 

[Sleuth]

The prices are indeed very attractive, but I immediately thought of several questions. Considering that the building won't be finished for overt two years from now, with "today's" prices significantly lower than an almost finished "comparable building" in the same area, I think potential buyers would want to know the following:

Steve,

I just followed up with my friend and here are his responses:

Are the pre-construction prices guaranteed?

These prices are fixed and locked in with no increase if 50% payment is made. There are not going to be any "inflation" charges added. The only additional charges would be for deviations from the standard furnish out of the apartment.

With full payment, there is no increase and also a 7% discount off the price. With 50% down payment, and 22 months of payments, there is no increase. With a 40% payment, there is a 5% increase in price.

Is there a possibility of "extra" charges?

There will be no extra charges unless you decided to deviate from the standard furnish out (materials, appliances, etc.). This will be high-end construction as well.

What if building costs escalate in the next two years like they have in the past two?

We are in a deflationary situation with steel and concrete, as building has slowed in the US and China. They have factored in a 10% cushion in the price and will buy most of the steel and concrete now to lock in price and not as they go.

Can the building be finished if costs do escalate and the apartments "sold out" at the pre-construction prices?

Only 30% of the inventory will be sold at this price. Prices will increase as inventory sells and some units will not be sold until the end. This will provide for the "cushion" needed for any costs escalating. The builders have enough personal resources to finish this project as well.

Hope that answers your questions. Let me know if you have any others.

 

[soulskier]

In any city, desirable real estate is pretty stable.
There are just too many people on the planet with money these days.
Thats not to say that there arent bubbles, and that prices dont go down as well as up- but, even in this market, a one bedroom apartment in NYC in a good neighborhood is still costing $600,000. The really nice houses in LA or SF or Seattle are down, yes, but nowhere near 50%.
Same with Paris or London.

It is true that fools who think they can double their money in 2 years in these markets are finding out differently.

In BsAs, the quality, older units in good neighborhoods are not gonna drop 50%. They just may not go UP 25% a year.

And the really nice, older apartments in Recoleta, or Palermo, are still incredible screaming bargains when compared to similar places in other cities of 4 Million people, worldwide.
Show me a flat in London, or Madrid, or San Francisco, or Tokyo, with 4 meter ceilings, hardwood floors, stained glass, 150 sq meters or so, with a doorman, a lobby with marble and brass, that sells for $250,000 US. Or even $500,000 US.
And yet, savvy shoppers can still find places like that, with incredible character and detailing, in very good neighborhoods in BsAs.
A one car garage stall can go for that much in SF or NYC, easily, in the right neighborhood.

What I would be hesitant to buy, is the brand new, ice cube tray, shoddily built condos in places like Palermo Hollywood. These things are cheap, quickly built, and won't age well. Interiors are basic, low quality finishes, cabinets are particleboard, everything is as cheap as it can be. They are NOT gonna be the high priced, desirable locations in 5 or 10 years- Juan B Justo is loud and dirty, there is none of the old charm of Recoleta or San Telmo.

In any market, the places people want to live hold their value, while the quick speculative frenzy fades.

Nice post, I believe you to be correct on all your points.

 

[Ries]

Stan-
I do not profess to be a fortune teller, and I am sure prices will go DOWN, and UP, everywhere at one time or another. But I do believe that if you buy a nice place, in a neighborhood where people want to live, be it Ubud in Bali, or in downtown Firenze, it will be a much better investment than a crummy house in a marginal neighborhood.
Plus, it will be a much more enjoyable place to live.

 

[DanP]

Of course most of the posters here aren't Argentine. This is an expat website.

I bought an apartment because I chose to live here. If I had kept that same money in a bank in the States and gradually paid it in rent here, it would be depleted in less than ten years. I can't live in the bank and the bank was paying me far less to keep my money than my apartment is appreciating (even now).

If I had kept that money in mutual funds through this past year, I would have had much less much faster. I can't live in a mutual fund, either.

The 2001-2002 crisis here wasn't nearly as terrifying as other periods in Argentina in the past 50 years or nearly as dear in terms of lives lost as from civil "unrest" in the US in the past 20 years.

In 2002 many Argentines lost money in banks, but loss of life here was less than half (26) compared to the death toll (55) in Rodney King riots in LA in 1991.

Personally, I'd rather be in Buenos Aires, with my money in bricks and canvas.

I recently met an Argentine girl who relocated to Montreal in 2002; her entire family (native Argentines, mind you, who probably stick out a lot less than me and you) left BA after the mother was held up at gunpoint in Recoleta. I wasn't here in '01, so I couldn't really tell you much about the situation. I will say that I don't hang out in SouthCentral Los Angeles, either, so I wasn't too worried about the Rodney King riots.

I expressed my opinion based on my situation, and certainly would expect you to do the same. If I was to buy property in BA, I would live here half the year, and try to rent out the apartment for the remainder. With the precipitous drop in tourism, it seems like the temporary apartments are becoming harder to fill. Just look at Craigslist: the same listings keep popping up day after day. Therefore, in my situation, I would potentially be looking at an unoccupied apartment for quite a while: that's a property investor's worst nightmare.

The title of this thread is "Argentine Real Estate Market to go down 50%". I would rather be earning interest on 8% tax-free municipal bonds in the States (available now, and if those fail, God help us all) than risk that kind of depreciation here. That said, I don't anticipate that happening, but when I see all of these high-rises going up across the BA Skyline, I'm reminded of a very similar phenomenon in the States that brought the world economy to a halt just 3 months ago.

Additionally, I've heard many Argentines state their belief that rental prices are finally coming down and becoming competitive with purchase prices. I would assume that's a result of the ridiculous amount of construction.

Again, I wouldn't presume to tell you how to handle your finances. But many people in the States have found out how dangerous it is to consider personal property an asset, rather than a liability.

 

[soulskier]

An asset=positive cash flow.
A liability=negative cash flow.

It's as easy as that!

 

[DanP]

An asset=positive cash flow.
A liability=negative cash flow.

It's as easy as that!

So do you agree with that, Soulskier? I just read Rich Dad, Poor Dad (a pretty good review of the basics, if anyone is interested), and he makes the assertion that personal property (ie, not owned for rental income/flipping) is always a liability, because it will be negative cash flow, in terms of taxes, mortgage payments, maintenance, etc.

P.S. Still hoping to make it to Bariloche for the season!